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Biotech firm raises $10 mn from PE fund

Bangalore-based Cellworks Group Inc., which also has an office in California, has raised about $8-10 million (Rs41.44-51.80 crore) from a California private equity (PE) investor, details of which will be announced in the next few weeks, says its co-founder and chief executive Taher Abbasi.

Still, in a financing environment that is getting more challenging by the day, if an Indian biotechnology start-up raises close to $10 million in private equity it doesn’t necessarily signal an uptick in the biotech fortunes, rather this sets it apart from the rest as many of them begin to look for government money.

Abbasi, who has been negotiating this deal for some time, agrees that “investors are not issuing new term sheets and new deals are on hold”.

As the stock market in the US continues to fall, biotech companies have been hit hard—120 of the 370 public companies in that country have less than six months of cash, according to the US trade body Biotech Industry Organization’s 26 February report. In comparison, the Indian biotech industry seems slightly cushioned.

“Indian companies have a service model inbuilt in their business…it’s learn while you earn,” says Shrikumar Suryanarayan, director general of the industry body Association of Biotech Led Enterprises (ABLE). The few start-ups that engage in research and development, he adds, are cross-border entities which use the Indian arm for cost reduction as India continues to be an affordable innovation destination.

The true impact of the slowdown on the sector will emerge when the annual industry report is released in June by ABLE and the trade journal BioSpectrum, but experts think as the money supply gets tighter there’s a big opportunity for India.

“Pressure on cost reduction is not ruled out but it’ll overall be good as Indian bio-services will now become affordable to local start-ups,” says Suryanarayan. He draws parallels from the IT industry where services from leading vendors such as Infosys Technologies Ltd and Wipro Ltd were unaffordable to Indian technology companies until the dot-com bust in 2000-01 which eventually rationalized the rates.

For product companies, which have long laboured under the yoke of not having funding, there’s now public money available for radical research. The department of biotechnology (DBT) in New Delhi launched the Rs350 crore Biotechnology Industry Partnership Programme (BIPP) in December from which the first round of awards will go out in March.

Under this, for the first time, the government is using taxpayers’ money to fund truly innovative and risky research. DBT secretary M.K. Bhan says that in tough economic times the government needs to “treat biotech as public sector units” to facilitate product development and ensure their affordability. The Rs350 crore budget can be scaled up if it gets adequately utilized, says Bhan.

This has generated excitement in the sector and companies, including Cellworks, which traditionally did not tap into DBT funds, are planning to do so. “We snugly fit in the category (drug discovery, diagnostics, and clinical trials) of grants that the government is now providing,” says Sriram Nadathur, director of Nadathur Holdings and Investments Pvt. Ltd, promoter of Lifespring Ventures which has funded a suite of drug discovery and development start-ups. While Lifespring is already financing its five start-ups, Nadathur thinks the additional fund from DBT can be deployed for “another programme”.

“It is nice to have it; not necessary to have it.”

But for those such as Navya Biologicals Pvt. Ltd, DBT could well be the saviour. Operating on internal accruals from services to pharma companies, Navya is developing a basket of blood proteins needed in treatment of accident or burn victims. This research is funded under DBT’s Small Business Innovation Research Initiative. “Once we cross the proof of concept stage in next four to five months, we’ll apply for BIPP grants,” says co-founder Vinay Konaje, acknowledging that there’s at least four to five years of work before the product could be ready for use.

Several such high value researches or so-called shovel-ready ideas are being pursued in the start-ups around the country which require not only funding but serious hand-holding to reach the market. For that, DBT has set up a two-year, Rs30 crore pilot project called Biotechnology Industry Research Assistance Programme.

But, entrepreneurs say, the department also needs to revamp its operations as the industry doesn’t have “pleasant experiences” dealing with its funding bureaucracy.

“Besides filling 40-50 pages of application forms, the types of questions asked—how many and what types of equipment you have, how much you pay your staff, et al.—are big discouragements,” says Abbasi. Nadathur, too, doesn’t recall any cordial collaboration. “There is will (in the government) but no structured way of disbursing money, which is very unlike venture capitalists,” says Anuradha Acharya, promoter of bio-IT services company Ocimum Biosolutions Ltd in Hyderabad.

Both Bhan and Suryanarayan agree that these are evolving times and many teething issues will be solved as these initiatives mature, but it appears the entrepreneurs themselves want more clarity.

“Since BIPP uses public money, DBT needs to maximize returns and have more accountability and transparency,” says Konaje.